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Comparable Company Information

Net Debt
(in D/E Equity Beta Asset Beta
$ 000s)
D&B Shoe Company 125442 29.90% 2.68 2.27
Marina Wilderness -91559 -7.60% 1.94 2.03
General Shoe Corp 171835 32.20% 1.92 1.61
Kinsley Coulter Products 82236 49.70% 1.12 0.86
Victory Athletic 7653207 21.70% 0.97 0.86
Surfside Footwear 195540 34.30% 2.13 1.77
Alpine Company 300550 28.50% 1.27 1.08
Heartland Outdoor Footwear -97018 -6.70% 1.01 1.05
Templeton Athletic 169579 42.60% 0.98 0.78
Average 24.90% 1.37
WACC Calculation
Debt/Value 20%
Cost of Debt(Kd) 6%
Debt/Equity 25%
10 year US treasury (Risk Free Rate) 4.73%
Market Return (March 2007 US) 8.49%
Risk Premium 3.76%
Tax Rate 40%
Ba(beta asset) 1.37
Be(beta Equity) 1.57
Cost of Equity(Ke) 10.65%
WACC 9.24%
Mercury Athletic Footwear: Projected Performance
2007 2008 2009 2010 2011
Consolidated Revenue ($ in 000s) 479,329 489,028 532,137 570,319 597,717
Less Operating Expenses 423,837 427,333 465,110 498,535 522,522
Less Corporate Overhead 8,487 8,659 9,422 10,098 10,583
Consolidated Operating Inc 47,005 53,036 57,605 61,686 64,612

Estimated Capital Expenditure 11,983 12,226 13,303 14,258 14,943


Estimated Depreciation 9,587 9,781 10,643 11,406 11,954
Mercury Athletic Foostwear: Balance Sheet Projection ($ in thousands)
Selected Balance Sheet Accounts 2007 2008 2009 2010 2011
Assets
Cash Used in Operations 4,161 4,195 4,566 4,894 5,130
Accounts Receivable 47,888 48,857 53,164 56,978 59,715
Inventory 83,770 85,465 92,999 99,672 104,460
Prepaid Expense 14,474 14,767 16,069 17,222 18,049

Property, Plant & Equipment 35,015 37,460 40,120 42,972 45,961


Trademarks and Other Intangibles 43,853 43,853 43,853 43,853 43,853
Goodwill 43,051 43,051 43,051 43,051 43,051
Other Assets 11,162 11,162 11,162 11,162 11,162

Liabilities
Accounts Payable 18,830 18,985 20,664 22,149 23,214
Accrued Expenses 22,778 22,966 24,996 26,792 28,081

Deferred Taxes 11,654 11,654 11,654 11,654 11,654


Pension Obligations 9,080 9,080 9,080 9,080 9,080
Mercury Athletic Foostwear: Rearranged Balance Sheet ($ in thousands)
Selected Balance Sheet Accounts 2006 2007 2008 2009 2010 2011
Assets
NWC 104,117 108,685 111,333 121,138 129,825 136,059
Property, Plant & Equipment 32,618 35,015 37,460 40,120 42,972 45,961
Net Other Assets (OA - OL) 77,332 77,332 77,332 77,332 77,332 77,332

Liabilities
Debt 0 0 0 0 0 0
Valuation
2006 2007 2008 2009 2010 2011
EBIT $ 42,299 $ 47,005 $ 53,036 $ 57,605
$ $ 61,686 64,612
EBIT(1-T) $ 25,379 $ 28,203 $ 31,822 $ 34,563
$ $ 37,012 38,767
Depreciation $ 9,506 $ 9,587 $ 9,781 $ 10,643
$ $ 11,406 11,954
CAPEX $ 11,983 $ 12,226 $ 13,303
$ $ 14,258 14,943
WC $ 104,117 $ 108,685 $ 111,333 $ 121,138
$ $ 129,825 136,059
Change in WC $ 4,568 $ 2,648 $ 9,805
$ $ 8,687 6,234
FCFF $ 21,239 $ 26,729 $ 22,098
$ $ 25,473 29,544
Terminal Value $ 487,758
Net FCF $ 21,239 $ 26,729 $ 22,098 $ 25,473 $ 517,302
Enterprise Value $409,233
Long-run growth 3%
Valuation using rearranged Balance Sheet
2006 2007 2008 2009 2010
2011
EBIT $ 42,299 $ 47,005 $ 53,036 $ 57,605 $ 61,686
64,612 $
EBIT(1-T) $ 25,379 $ 28,203 $ 31,822 $ 34,563 $ 37,012
38,767 $
NWC $ 104,117 $ 108,685 $ 111,333 $ 121,138 $129,825
136,059 $
Change in NWC $ 4,568 $ 2,648 $ 9,805 $ 8,687
6,234 $
NFA $ 32,618 $ 35,015 $ 37,460 $ 40,120 $ 42,972
45,961 $
Change in NFA $ 2,397 $ 2,445 $ 2,660 $ 2,852
2,989 $
NOA 77332 77332 77332 77332 77332
77332
Change in NOA 0 0 0 00
FCFF $ 21,238 $ 26,729 $ 22,098 $ 25,473
$ 29,544
Terminal Value $ 487,758
Net FCF $ 21,238 $ 26,729 $ 22,098 $ 25,473 $ 517,302
Enterprise Value $409,233
Long-run growth 3%

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